Monetary policy through exchange rate pegs: The removal of the Swiss franc‐Euro floor and stock price reactions. (9th September 2020)

• Record Type: Journal Article
• Authors: von Schweinitz, Gregor; Tonzer, Lena; Buchholz, Manuel
• Is Part Of: International review of finance. Volume 21:Number 4(2021)
• Page Start: 1382
• Page End: 1406
• Publication Date: 2020-09-09
• Subjects: exchange rates -- stock markets -- synthetic matching -- uncertainty; Finance -- Periodicals; Financial institutions -- Periodicals; 332.673
• DOI: 10.1111/irfi.12332
• Languages: English
• ISSNs: 1369-412X

Abstract

Abstract: The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Using a synthetic matching framework, we analyze the impact of this unexpected (and therefore exogenous) policy change on the stock market. The results reveal a significant level shift (decline) in asset prices following the discontinuation of the minimum exchange rate. As a novel finding in the literature, we document that the exchange‐rate elasticity of Swiss asset prices is around −0.75. Differentiating between sectors of the Swiss economy, we find that the industrial, financial and consumer goods sectors are most strongly affected by the abolition of the minimum exchange rate.